NetEase Announces Second Quarter 2024 Unaudited Financial Results
HANGZHOU, China, Aug. 22, 2024 /PRNewswire/ -- NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase" or the "Company"), a leading internet and game services provider, today announced its unaudited financial results for the second quarter ended June 30, 2024.
Second Quarter 2024 Financial Highlights
-- Net revenues were RMB25.5 billion (US$3.5 billion), an increase of 6.1%
compared with the same quarter of 2023.
-- Games and related value-added services net revenues were RMB20.1
billion (US$2.8 billion), an increase of 6.7% compared with the same
quarter of 2023.
-- Youdao net revenues were RMB1.3 billion (US$181.9 million), an
increase of 9.5% compared with the same quarter of 2023.
-- Cloud Music net revenues were RMB2.0 billion (US$280.8 million), an
increase of 4.7% compared with the same quarter of 2023.
-- Innovative businesses and others net revenues were RMB2.1 billion
(US$284.5 million), which was relatively stable compared with the
same quarter of 2023.
-- Gross profit was RMB16.0 billion (US$2.2 billion), an increase of 11.6%
compared with the same quarter of 2023.
-- Total operating expenses were RMB9.0 billion (US$1.2 billion), an
increase of 8.9% compared with the same quarter of 2023.
-- Net income attributable to the Company's shareholders was RMB6.8 billion
(US$930.0 million). Non-GAAP net income attributable to the Company's
shareholders was RMB7.8 billion (US$1.1 billion).([1] )
-- Basic net income per share was US$0.29 (US$1.45 per ADS). Non-GAAP basic
net income per share was US$0.33 (US$1.67 per ADS).([1])
[1] As used in this announcement, non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per share and per ADS are defined to exclude share-based compensation expenses. See the unaudited reconciliation of GAAP and non-GAAP results at the end of this announcement.
Second Quarter 2024 and Recent Operational Highlights
-- Launched popular new titles, further enhancing our appeal in diversified
genres:
-- Lost Light mobile game, a multiplayer tactical shooter game, topped
the iOS download charts in China following its June launch.
-- Once Human, a multiplayer open-world survival game set in a
post-apocalyptic world, attained over 230,000 peak concurrent users
on Steam soon after its launch, ranking among the top 5 most-played
games in the world.
-- Naraka: Bladepoint mobile game hit the top 3 on iOS grossing charts
soon after launch in China, and topped the iOS download chart for
over a week.
-- Generated continued popularity of hit games, with Naraka: Bladepoint
reaching record-high DAUs on its three-year anniversary, and Identity V
continuing its strong performance, hitting record-high DAUs in July and
August, consecutively.
-- Brought highly anticipated NetEase titles to partners' world-leading
gaming platforms:
-- Unveiled plans to bring Where Winds Meet and Marvel Rivals to
consoles at PlayStation State of Play. Marvel Rivals also announced
during Gamescom its release date for December 6(th).
-- Announced FragPunk, a 5v5 first-person hero shooter game, at the
Xbox Games Showcase 2024, highlighting its innovative shooting
experience with unique card mechanics.
-- Eggy Party joined Nintendo Direct with upcoming plans for a
worldwide release on Switch.
-- Brought World of Warcraft back to China with players enthusiastically
welcoming the unfolding return of Blizzard's game portfolio.
-- Youdao continued to drive growth in digital content services, online
marketing services and AI-driven subscription services, recording
historic-high operating cash flow and significantly narrowed operating
loss compared with the same quarter of last year.
-- Cloud Music continued to propel quality development across its
music-centric ecosystem, further augmented its unique community, and
kept bringing users high-quality music experiences.
"The robust R&D and operating capabilities we've built over the past two decades have shaped our formidable games portfolio of time-honored titles and newer innovative hits that redefine genres and diversify our offerings," said Mr. William Ding, Chief Executive Officer and Director of NetEase. "With a growing portfolio of games that feature higher quality and cover more genres, we are thrilled to bring exciting NetEase gaming experiences to more players around the globe. As we expand our reach to players in China and worldwide, innovation remains our priority. We will continue to explore opportunities with talent and partners in the industry to drive the next wave of gaming trends.
"Alongside our games, Cloud Music and Youdao are also on track for continued growth this year. Superior content is the thread that connects our NetEase family, and we continue to bring experiences that resonate with our users across our businesses," Mr. Ding concluded.
Second Quarter 2024 Financial Results
Net Revenues
Net revenues for the second quarter of 2024 were RMB25.5 billion (US$3.5 billion), compared with RMB26.9 billion and RMB24.0 billion for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from games and related value-added services were RMB20.1 billion (US$2.8 billion) for the second quarter of 2024, compared with RMB21.5 billion and RMB18.8 billion for the preceding quarter and the same quarter of 2023, respectively. Net revenues from the operation of online games accounted for approximately 96.1% of the segment's net revenues for the second quarter of 2024, compared with 95.2% and 91.7% for the preceding quarter and the same quarter of 2023, respectively. Net revenues from mobile games accounted for approximately 76.4% of net revenues from the operation of online games for the second quarter of 2024, compared with 78.6% and 73.6% for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from Youdao were RMB1.3 billion (US$181.9 million) for the second quarter of 2024, compared with RMB1.4 billion and RMB1.2 billion for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from Cloud Music were RMB2.0 billion (US$280.8 million) for the second quarter of 2024, compared with RMB2.0 billion and RMB1.9 billion for the preceding quarter and the same quarter of 2023, respectively.
Net revenues from innovative businesses and others were RMB2.1 billion (US$284.5 million) for the second quarter of 2024, compared with RMB2.0 billion and RMB2.1 billion for the preceding quarter and the same quarter of 2023, respectively.
Gross Profit
Gross profit for the second quarter of 2024 was RMB16.0 billion (US$2.2 billion), compared with RMB17.0 billion and RMB14.4 billion for the preceding quarter and the same quarter of 2023, respectively.
The quarter-over-quarter decrease in games and related value-added services' gross profit was primarily due to lower net revenues from certain mobile games. The year-over-year increase was primarily due to increased net revenues from mobile games such as Identity V and Justice mobile game, launched in 2023.
The quarter-over-quarter decrease in Youdao's gross profit was primarily due to lower net revenues from its learning services. The year-over-year increase was primarily due to higher net revenues from its online marketing services.
The quarter-over-quarter decrease in Cloud Music's gross profit primarily resulted from the one-off adjustment of certain copyright costs in the preceding quarter. The year-over-year increase was primarily due to increased net revenues from sales of membership subscriptions and continued improvement in cost control measures.
The quarter-over-quarter and year-over-year increases in innovative businesses and others' gross profit were primarily due to increased gross profit from Yanxuan and several other businesses included within the segment.
Gross Profit Margin
Gross profit margin for games and related value-added services for the second quarter of 2024 was 70.0%, compared with 69.5% and 67.4% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year increases were mainly attributable to changes in product mix.
Gross profit margin for Youdao for the second quarter of 2024 was 48.2%, compared with 49.0% and 47.0% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter decrease was mainly due to decreased revenue contribution from its learning services. The year-over-year increase was mainly due to the improvement of gross profit margin from its online marketing services.
Gross profit margin for Cloud Music for the second quarter of 2024 was 32.1%, compared with 38.0% and 27.0% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year fluctuations were mainly due to the factors enumerated above. The one-off adjustment of copyright costs mentioned above increased the gross profit margin in the preceding quarter by approximately five percentage points.
Gross profit margin for innovative businesses and others for the second quarter of 2024 was 34.0%, compared with 33.4% and 29.5% for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter and year-over-year increases were mainly due to changes in the product mix within the segment.
Operating Expenses
Total operating expenses for the second quarter of 2024 were RMB9.0 billion (US$1.2 billion), compared with RMB9.4 billion and RMB8.3 billion for the preceding quarter and the same quarter of 2023, respectively. The quarter-over-quarter decrease was mainly due to decreased marketing expenditures related to games and related value-added services. The year-over-year increase was mainly due to increased research and development investments and marketing expenditures associated with games and related value-added services.
Other Income/(Expenses)
Other income/(expenses) consisted of investment income, interest income, exchange gains/(losses) and others. The quarter-over-quarter and year-over-year decreases were mainly due to net exchange losses in the second quarter of 2024 compared with net exchange gains recorded in the preceding quarter and the same quarter of 2023.
Income Tax
The Company recorded a net income tax charge of RMB1.3 billion (US$179.0 million) for the second quarter of 2024, compared with RMB1.5 billion and RMB712.1 million for the preceding quarter and the same quarter of 2023, respectively. The effective tax rate for the second quarter of 2024 was 16.0%, compared with 16.0% and 8.0% for the preceding quarter and the same quarter of 2023, respectively. The effective tax rate represents certain estimates by the Company as to the tax obligations and benefits applicable to it in each quarter.
Net Income and Non-GAAP Net Income
Net income attributable to the Company's shareholders totaled RMB6.8 billion (US$930.0 million) for the second quarter of 2024, compared with RMB7.6 billion and RMB8.2 billion for the preceding quarter and the same quarter of 2023, respectively.
NetEase reported basic net income of US$0.29 per share (US$1.45 per ADS) for the second quarter of 2024, compared with US$0.33 per share (US$1.64 per ADS) and US$0.35 per share (US$1.76 per ADS) for the preceding quarter and the same quarter of 2023, respectively.
Non-GAAP net income attributable to the Company's shareholders totaled RMB7.8 billion (US$1.1 billion) for the second quarter of 2024, compared with RMB8.5 billion and RMB9.0 billion for the preceding quarter and the same quarter of 2023, respectively.
NetEase reported non-GAAP basic net income of US$0.33 per share (US$1.67 per ADS) for the second quarter of 2024, compared with US$0.36 per share (US$1.82 per ADS) and US$0.39 per share (US$1.93 per ADS) for the preceding quarter and the same quarter of 2023, respectively.
Other Financial Information
As of June 30, 2024, the Company's net cash (total cash and cash equivalents, current and non-current time deposits and restricted cash, as well as short-term investments balance, minus short-term and long-term loans) totaled RMB116.1 billion (US$16.0 billion), compared with RMB110.9 billion as of December 31, 2023. Net cash provided by operating activities was RMB6.5 billion (US$898.8 million) for the second quarter of 2024, compared with RMB9.6 billion and RMB7.7 billion for the preceding quarter and the same quarter of 2023, respectively.
Quarterly Dividend
The board of directors has approved a dividend of US$0.0870 per share (US$0.4350 per ADS) for the second quarter of 2024 to holders of ordinary shares and holders of ADSs as of the close of business on September 6, 2024, Beijing/Hong Kong Time and New York Time, respectively, payable in U.S. dollars. For holders of ordinary shares, in order to qualify for the dividend, all valid documents for the transfer of shares accompanied by the relevant share certificates must be lodged for registration with the Company's Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17(th) Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on September 6, 2024 (Beijing/ Hong Kong Time). The payment date is expected to be September 17, 2024 for holders of ordinary shares and on or around September 20, 2024 for holders of ADSs.
NetEase paid a dividend of US$0.0990 per share (US$0.4950 per ADS) for the first quarter of 2024 in June 2024.
Under the Company's current dividend policy, the determination to make dividend distributions and the amount of such distribution in any particular quarter will be made at the discretion of its board of directors and will be based upon the Company's operations and earnings, cash flow, financial condition and other relevant factors.
Share Repurchase Program
On November 17, 2022, the Company announced that its board of directors had approved a share repurchase program of up to US$5.0 billion of the Company's ADSs and ordinary shares in open market transactions. This share repurchase program commenced on January 10, 2023 and will be in effect for a period not to exceed 36 months from such date. As of June 30, 2024, approximately 11.9 million ADSs had been repurchased under this program for a total cost of US$1.1 billion.
The extent to which NetEase repurchases its ADSs and its ordinary shares depends upon a variety of factors, including market conditions. These programs may be suspended or discontinued at any time.
** The United States dollar (US$) amounts disclosed in this announcement are presented solely for the convenience of the reader. The percentages stated are calculated based on RMB.
Conference Call
NetEase's management team will host a teleconference call with a simultaneous webcast at 8:00 a.m. New York Time on Thursday, August 22, 2024 (Beijing/Hong Kong Time: 8:00 p.m., Thursday, August 22, 2024). NetEase's management will be on the call to discuss the quarterly results and answer questions.
Interested parties may participate in the conference call by dialing 1-914-202-3258 and providing conference ID: 10040836, 15 minutes prior to the initiation of the call. A replay of the call will be available by dialing 1-855-883-1031 and entering PIN: 10040836. The replay will be available through August 29, 2024.
This call will be webcast live and the replay will be available for 12 months. Both will be available on NetEase's Investor Relations website at http://ir.netease.com/.
About NetEase, Inc.
NetEase, Inc. (NASDAQ: NTES and HKEX: 9999, "NetEase") is a leading internet and game services provider centered around premium content. With extensive offerings across its expanding gaming ecosystem, the Company develops and operates some of the most popular and longest running mobile and PC games available in China and globally.
Powered by one of the largest in-house game R&D teams focused on mobile, PC and console, NetEase creates superior gaming experiences, inspires players, and passionately delivers value for its thriving community worldwide. By infusing play with culture, and education with technology, NetEase transforms gaming into a meaningful vehicle to build a more entertaining and enlightened world.
Beyond games, NetEase service offerings include its majority-controlled subsidiaries Youdao (NYSE: DAO), an intelligent learning company with industry-leading technology, and Cloud Music (HKEX: 9899), a well-known online music platform featuring a vibrant content community, as well as Yanxuan, NetEase's private label consumer lifestyle brand.
For more information, please visit: http://ir.netease.com/.
Forward Looking Statements
This announcement contains statements of a forward-looking nature. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions. In addition, statements that are not historical facts, including statements about NetEase's strategies and business plans, its expectations regarding the growth of its business and its revenue and the quotations from management in this announcement are or contain forward-looking statements. NetEase may also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in announcements made on the website of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange"), in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks related to: the risk that the online games market will not continue to grow or that NetEase will not be able to maintain its position in that market in China or globally; risks associated with NetEase's business and operating strategies and its ability to implement such strategies; NetEase's ability to develop and manage its operations and business; competition for, among other things, capital, technology and skilled personnel; potential changes in government regulation that could adversely affect the industry and geographical markets in which NetEase operates; the risk that NetEase may not be able to continuously develop new and creative online services or that NetEase will not be able to set, or follow in a timely manner, trends in the market; risks related to economic uncertainty and capital market disruption; risks related to the expansion of NetEase's businesses and operations internationally; risks associated with cybersecurity threats or incidents; and the risk that fluctuations in the value of the Renminbi with respect to other currencies could adversely affect NetEase's business and financial results. Further information regarding these and other risks is included in NetEase's filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. NetEase does not undertake any obligation to update this forward-looking information, except as required under applicable law.
Non-GAAP Financial Measures
NetEase considers and uses non-GAAP financial measures, such as non-GAAP net income attributable to the Company's shareholders and non-GAAP basic and diluted net income per ADS and per share, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
NetEase defines non-GAAP net income attributable to the Company's shareholders as net income attributable to the Company's shareholders excluding share-based compensation expenses. Non-GAAP net income attributable to the Company's shareholders enables NetEase's management to assess its operating results without considering the impact of share-based compensation expenses. NetEase believes that this non-GAAP financial measure provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose. NetEase also believes that the use of this non-GAAP financial measure facilitates investors' assessment of its operating performance.
Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using non-GAAP net income attributable to the Company's shareholders is that it does not reflect all items of expense/ income that affect our operations. Share-based compensation expenses have been and may continue to be incurred in NetEase's business and are not reflected in the presentation of non-GAAP net income attributable to the Company's shareholders. In addition, the non-GAAP financial measures NetEase uses may differ from the non-GAAP measures used by other companies, including peer companies, and therefore their comparability may be limited.
NetEase compensates for these limitations by reconciling non-GAAP net income attributable to the Company's shareholders to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating the Company's performance. See the unaudited reconciliation of GAAP and non-GAAP results at the end of this announcement. NetEase encourages you to review its financial information in its entirety and not rely on a single financial measure.
Contact for Media and Investors:
Email: ir@service.netease.com
Tel: (+86) 571-8985-3378
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, June 30, June 30,
2023 2024 2024
RMB RMB USD (Note 1)
Assets
Current assets:
Cash and cash equivalents 21,428,902 18,982,239 2,612,043
Time deposits 100,856,034 93,456,225 12,860,005
Restricted cash 2,777,206 2,869,827 394,901
Accounts receivable, net 6,422,417 6,364,847 875,832
Inventories 695,374 574,441 79,046
Prepayments and other current assets, net 6,076,595 5,487,749 755,139
Short-term investments 4,436,057 10,417,802 1,433,537
Total current assets 142,692,585 138,153,130 19,010,503
Non-current assets:
Property, equipment and software, net 8,075,044 8,092,032 1,113,501
Land use rights, net 4,075,143 4,022,255 553,481
Deferred tax assets 1,560,088 1,504,697 207,053
Time deposits 1,050,000 3,940,000 542,162
Restricted cash 550 3,250 447
Other long-term assets 28,471,568 27,627,257 3,801,637
Total non-current assets 43,232,393 45,189,491 6,218,281
Total assets 185,924,978 183,342,621 25,228,784
Liabilities, Redeemable Noncontrolling Interests
and Shareholders' Equity
Current liabilities:
Accounts payable 881,016 792,003 108,983
Salary and welfare payables 4,857,206 3,606,360 496,252
Taxes payable 2,571,534 2,381,220 327,667
Short-term loans 19,240,163 13,187,247 1,814,626
Contract liabilities 13,362,166 13,615,857 1,873,604
Accrued liabilities and other payables 12,930,399 12,345,208 1,698,757
Total current liabilities 53,842,484 45,927,895 6,319,889
Non-current liabilities:
Deferred tax liabilities 2,299,303 1,448,781 199,359
Long-term loans 427,997 427,997 58,894
Other long-term liabilities 1,271,113 1,192,543 164,099
Total non-current liabilities 3,998,413 3,069,321 422,352
Total liabilities 57,840,897 48,997,216 6,742,241
Redeemable noncontrolling interests 115,759 119,498 16,443
NetEase, Inc.'s shareholders' equity 124,285,776 130,909,906 18,013,803
Noncontrolling interests 3,682,546 3,316,001 456,297
Total equity 127,968,322 134,225,907 18,470,100
Total liabilities, redeemable noncontrolling 185,924,978 183,342,621 25,228,784
interests and shareholders' equity
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data or per ADS data)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2023 2024 2024 2024 2023 2024 2024
RMB RMB RMB USD (Note 1) RMB RMB USD (Note
1)
Net revenues 24,011,301 26,851,741 25,485,805 3,506,963 49,057,588 52,337,546 7,201,886
Cost of revenues (9,635,888) (9,835,821) (9,443,587) (1,299,481) (19,785,629) (19,279,408) (2,652,935)
Gross profit 14,375,413 17,015,920 16,042,218 2,207,482 29,271,959 33,058,138 4,548,951
Operating expenses:
Selling and marketing expenses (3,271,705) (4,022,204) (3,501,737) (481,855) (6,176,751) (7,523,941) (1,035,329)
General and administrative expenses (1,132,147) (1,196,475) (1,091,441) (150,187) (2,153,825) (2,287,916) (314,828)
Research and development expenses (3,908,907) (4,174,758) (4,455,717) (613,127) (7,658,639) (8,630,475) (1,187,593)
Total operating expenses (8,312,759) (9,393,437) (9,048,895) (1,245,169) (15,989,215) (18,442,332) (2,537,750)
Operating profit 6,062,654 7,622,483 6,993,323 962,313 13,282,744 14,615,806 2,011,201
Other income/(expenses):
Investment income, net 287,691 179,291 103,674 14,266 759,059 282,965 38,937
Interest income, net 935,578 1,277,597 1,186,219 163,229 1,711,608 2,463,816 339,032
Exchange gains/(losses), net 1,464,956 15,011 (239,375) (32,939) 1,078,388 (224,364) (30,874)
Other, net 120,826 193,888 85,694 11,792 378,859 279,582 38,472
Income before tax 8,871,705 9,288,270 8,129,535 1,118,661 17,210,658 17,417,805 2,396,768
Income tax (712,090) (1,485,910) (1,300,939) (179,015) (2,340,649) (2,786,849) (383,483)
Net income 8,159,615 7,802,360 6,828,596 939,646 14,870,009 14,630,956 2,013,285
Accretion of redeemable noncontrolling (868) (958) (960) (132) (1,728) (1,918) (264)
interests
Net loss/(income) attributable to noncontrolling 84,020 (167,456) (68,887) (9,479) 129,120 (236,343) (32,522)
interests and redeemable noncontrolling
interests
Net income attributable to the 8,242,767 7,633,946 6,758,749 930,035 14,997,401 14,392,695 1,980,499
Company's shareholders
Net income per share *
Basic 2.56 2.38 2.10 0.29 4.66 4.48 0.62
Diluted 2.54 2.35 2.08 0.29 4.61 4.43 0.61
Net income per ADS *
Basic 12.80 11.88 10.50 1.45 23.29 22.39 3.08
Diluted 12.69 11.75 10.42 1.43 23.05 22.17 3.05
Weighted average number of ordinary
shares used in calculating net income
per share *
Basic 3,218,783 3,211,665 3,217,699 3,217,699 3,219,926 3,214,682 3,214,682
Diluted 3,248,916 3,249,452 3,243,056 3,243,056 3,252,707 3,246,254 3,246,254
* Each ADS represents five ordinary shares.
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2023 2024 2024 2024 2023 2024 2024
RMB RMB RMB USD (Note 1) RMB RMB USD (Note 1)
Cash flows from operating activities:
Net income 8,159,615 7,802,360 6,828,596 939,646 14,870,009 14,630,956 2,013,285
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 661,363 567,923 631,957 86,960 1,743,632 1,199,880 165,109
Fair value changes of equity security and other investments (78,035) (368,258) (7,887) (1,085) (304,755) (376,145) (51,759)
Impairment losses on investments 47,870 128,417 210,741 28,999 47,870 339,158 46,670
Fair value changes of short-term investments (96,884) (60,810) (128,295) (17,654) (234,800) (189,105) (26,022)
Share-based compensation cost 787,862 894,300 1,079,056 148,482 1,610,275 1,973,356 271,543
Allowance for expected credit losses 8,540 11,600 9,281 1,277 29,260 20,881 2,873
Losses/(gains) on disposal of property, equipment and software 252 2,132 (326) (45) (358) 1,806 249
Unrealized exchange (gains)/losses (1,466,295) (17,509) (209,311) (28,802) (1,080,334) (226,820) (31,211)
Gains on disposal of long-term investments, business and (16,382) (13,487) (141,114) (19,418) (22,150) (154,601) (21,274)
subsidiaries
Deferred income taxes (334,380) 485,054 (1,280,076) (176,144) 243,286 (795,022) (109,399)
Share of results on equity method investees (129,292) 164,271 39,200 5,394 (225,100) 203,471 27,999
Changes in operating assets and liabilities:
Accounts receivable 770,551 (1,358,711) 1,410,478 194,088 (345,731) 51,767 7,123
Inventories 69,410 91,378 29,552 4,067 186,740 120,930 16,641
Prepayments and other assets (7,233) 326,140 530,856 73,048 118,594 856,996 117,927
Accounts payable (115,791) (7,001) (126,862) (17,457) (728,730) (133,863) (18,420)
Salary and welfare payables 758,106 (2,178,608) 879,058 120,963 (1,467,631) (1,299,550) (178,824)
Taxes payable (992,892) 1,271,822 (1,462,700) (201,274) (259,176) (190,878) (26,266)
Contract liabilities (41,196) 1,574,086 (1,270,324) (174,801) 448,795 303,762 41,799
Accrued liabilities and other payables (306,784) 242,070 (490,048) (67,433) (950,620) (247,978) (34,123)
Net cash provided by operating activities 7,678,405 9,557,169 6,531,832 898,811 13,679,076 16,089,001 2,213,920
Cash flows from investing activities:
Purchase of property, equipment and software (520,544) (415,018) (168,880) (23,239) (1,173,483) (583,898) (80,347)
Proceeds from sale of property, equipment and software 4,292 3,506 660 91 6,796 4,166 573
Purchase of intangible assets, content and licensed copyrights (283,321) (188,821) (399,533) (54,978) (1,110,003) (588,354) (80,960)
Net changes of short-term investments with terms of three 1,630,013 2,401,649 (8,194,289) (1,127,572) 906,862 (5,792,640) (797,094)
months or less
Proceeds from maturities of short-term investments with terms - 104,269
over three months
Investment in long-term investments and acquisition of (270,228) (481,804) (193,450) (26,620) (1,499,276) (675,254) (92,918)
subsidiaries
Proceeds from disposal of long-term investments, businesses 16,531 85,456 840,649 115,677 57,811 926,105 127,436
and subsidiaries
Placement/rollover of matured time deposits (10,874,831) (34,558,836) (61,775,606) (8,500,606) (47,194,934) (96,334,442) (13,256,060)
Proceeds from maturities of time deposits 21,918,791 46,048,382 55,211,839 7,597,402 44,251,140 101,260,221 13,933,870
Change in other long-term assets (31,189) (34,625) (172,543) (23,743) (152,030) (207,168) (28,507)
Net cash provided by/(used in) investing activities 11,589,514 12,859,889 (14,851,153) (2,043,588) (5,802,848) (1,991,264) (274,007)
Cash flows from financing activities:
Net changes from loans with terms of three months or less (14,970,935) (399,726) (2,085,053) (286,913) (12,332,895) (2,484,779) (341,917)
Proceeds of loans with terms over three months 2,171,541 6,998,250 1,069,020 147,102 3,451,100 8,067,270 1,110,093
Payment of loans with terms over three months (3,233,500) (957,000) (10,681,827) (1,469,868) (3,273,922) (11,638,827) (1,601,556)
Net amounts received related to capital contribution from 22,228 42,214 50,572 6,959 46,577 92,786 12,768
noncontrolling interests shareholders
Cash paid for repurchase of NetEase's ADSs/purchase of (2,195,210) (1,233,780) (2,007,030) (276,177) (4,311,967) (3,240,810) (445,950)
subsidiaries' ADSs and shares
Dividends paid to NetEase's shareholders (2,119,316) (4,945,016) (2,264,799) (311,647) (3,331,656) (7,209,815) (992,104)
Net cash used in financing activities (20,325,192) (495,058) (15,919,117) (2,190,544) (19,752,763) (16,414,175) (2,258,666)
Effect of exchange rate changes on cash, cash equivalents and (47,876) (43,138) 8,234 1,133 (32,378) (34,904) (4,803)
restricted cash held in foreign currencies
Net (decrease)/increase in cash, cash equivalents and restricted cash (1,105,149) 21,878,862 (24,230,204) (3,334,188) (11,908,913) (2,351,342) (323,556)
Cash, cash equivalents and restricted cash, at the beginning 16,784,561 24,206,658 46,085,520 6,341,579 27,588,325 24,206,658 3,330,947
of the period
Cash, cash equivalents and restricted cash, at end of the period 15,679,412 46,085,520 21,855,316 3,007,391 15,679,412 21,855,316 3,007,391
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net 1,625,045 1,182,711 2,848,493 391,966 2,699,624 4,031,204 554,712
Cash paid for interest expenses 326,646 146,455 152,943 21,046 602,360 299,398 41,199
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
UNAUDITED SEGMENT INFORMATION
(in thousands, except percentages)
Three Months Ended
Six Months Ended
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2023 2024 2024 2024 2023 2024 2024
RMB RMB RMB USD (Note
1) RMB RMB USD (Note 1)
Net revenues:
Games and related value-added services 18,798,646 21,460,378 20,055,819 2,759,772 38,864,243 41,516,197 5,712,819
Youdao 1,206,634 1,391,859 1,321,721 181,875 2,369,904 2,713,580 373,401
Cloud Music 1,948,539 2,029,541 2,040,952 280,844 3,908,380 4,070,493 560,118
Innovative businesses and others 2,057,482 1,969,963 2,067,313 284,472 3,915,061 4,037,276 555,548
Total net revenues 24,011,301 26,851,741 25,485,805 3,506,963 49,057,588 52,337,546 7,201,886
Cost of revenues:
Games and related value-added services (6,122,836) (6,555,311) (6,008,604) (826,812) (12,805,884) (12,563,915) (1,728,853)
Youdao (639,459) (710,356) (684,942) (94,251) (1,200,879) (1,395,298) (191,999)
Cloud Music (1,422,855) (1,259,006) (1,385,756) (190,686) (2,943,233) (2,644,762) (363,931)
Innovative businesses and others (1,450,738) (1,311,148) (1,364,285) (187,732) (2,835,633) (2,675,433) (368,152)
Total cost of revenues (9,635,888) (9,835,821) (9,443,587) (1,299,481) (19,785,629) (19,279,408) (2,652,935)
Gross profit:
Games and related value-added services 12,675,810 14,905,067 14,047,215 1,932,960 26,058,359 28,952,282 3,983,966
Youdao 567,175 681,503 636,779 87,624 1,169,025 1,318,282 181,402
Cloud Music 525,684 770,535 655,196 90,158 965,147 1,425,731 196,187
Innovative businesses and others 606,744 658,815 703,028 96,740 1,079,428 1,361,843 187,396
Total gross profit 14,375,413 17,015,920 16,042,218 2,207,482 29,271,959 33,058,138 4,548,951
Gross profit margin:
Games and related value-added services 67.4 % 69.5 % 70.0 % 70.0 % 67.0 % 69.7 % 69.7 %
Youdao 47.0 % 49.0 % 48.2 % 48.2 % 49.3 % 48.6 % 48.6 %
Cloud Music 27.0 % 38.0 % 32.1 % 32.1 % 24.7 % 35.0 % 35.0 %
Innovative businesses and others 29.5 % 33.4 % 34.0 % 34.0 % 27.6 % 33.7 % 33.7 %
The accompanying notes are an integral part of this announcement.
NETEASE, INC.
NOTES TO UNAUDITED FINANCIAL INFORMATION
Note 1: The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00 = RMB7.2672 on the last trading day of June 2024 (June 28, 2024) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 28, 2024, or at any other certain date.
Note 2: Share-based compensation cost reported in the Company's unaudited condensed consolidated statements of comprehensive income is set out as follows in RMB and USD (in thousands):
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2023 2024 2024 2024 2023 2024 2024
RMB RMB RMB USD (Note RMB RMB USD (Note
1) 1)
Share-based compensation cost included in:
Cost of revenues 193,001 254,935 319,949 44,026 396,515 574,884 79,107
Operating expenses
Selling and marketing expenses 31,069 17,869 42,865 5,898 63,422 60,734 8,357
General and administrative expenses 281,326 289,636 286,350 39,403 575,607 575,986 79,258
Research and development expenses 282,466 331,860 429,892 59,155 574,731 761,752 104,821
The accompanying notes are an integral part of this announcement.
Note 3: The financial information prepared and presented in this announcement might be different from those published and to be published by NetEase's listed subsidiary to meet the disclosure requirements under different accounting standards requirements.
Note 4: The unaudited reconciliation of GAAP and non-GAAP results is set out as follows in RMB and USD (in thousands, except per share data or per ADS data):
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30, June 30, June 30,
2023 2024 2024 2024 2023 2024 2024
RMB RMB RMB USD (Note
1) RMB RMB USD (Note 1)
Net income attributable to the Company's shareholders 8,242,767 7,633,946 6,758,749 930,035 14,997,401 14,392,695 1,980,499
Add: Share-based compensation 774,683 876,898 1,059,939 145,852 1,586,283 1,936,837 266,518
Non-GAAP net income attributable to the Company's shareholders 9,017,450 8,510,844 7,818,688 1,075,887 16,583,684 16,329,532 2,247,017
Non-GAAP net income per share *
Basic 2.80 2.65 2.43 0.33 5.15 5.08 0.70
Diluted 2.78 2.62 2.41 0.33 5.10 5.03 0.69
Non-GAAP net income per ADS *
Basic 14.01 13.25 12.15 1.67 25.75 25.40 3.49
Diluted 13.88 13.10 12.05 1.66 25.49 25.15 3.46
* Each ADS represents five ordinary shares.
The accompanying notes are an integral part of this announcement.
Note 5: Reconciliation between U.S. GAAP and International Financial Reporting Standards
The unaudited condensed consolidated financial information is prepared in accordance with U.S. GAAP, which differ in certain respects from International Financial Reporting Standards ("IFRSs"). The effects of material differences between the unaudited condensed consolidated financial information prepared under U.S. GAAP and IFRSs ("Reconciliation Statement") are as follows in RMB (in thousands).
PricewaterhouseCoopers, the auditor of the Company in Hong Kong, has performed a limited assurance engagement on the Reconciliation Statement in accordance with International Standard on Assurance Engagements 3000 (Revised) "Assurance Engagements Other Than Audits or Reviews of Historical Financial Information".
Reconciliation of unaudited condensed consolidated statements of income (Extract):
For the Six Months Ended June 30, 2023 IFRSs
adjustments
Amounts as Investments measured at fair
Redeemable Amounts as
reported under value noncontrolling
U.S. interests reported under
GAAP IFRSs
(Note (a)) (Note (b))
Investment income, net 759,059 694,453 1,453,512
Income before tax 17,210,658 694,453 17,905,111
Income tax (2,340,649) 15,289 (2,325,360)
Net income 14,870,009 709,742 15,579,751
Accretion of redeemable noncontrolling interests (1,728) 1,728
Net loss attributable to noncontrolling interests and 129,120 (3,879) 125,241
redeemable noncontrolling interests
Net income attributable to the Company's shareholders 14,997,401 709,742 (2,151) 15,704,992
For the Six Months Ended June 30, 2024 IFRSs
adjustments
Amounts as Investments measured at fair
Redeemable Amounts as
reported under value noncontrolling
U.S. interests reported under
GAAP IFRSs
(Note (a)) (Note (b))
Fair value changes of redeemable noncontrolling interests (571) (571)
Investment income, net 282,965 (108,548) 174,417
Income before tax 17,417,805 (108,548) (571) 17,308,686
Income tax (2,786,849) 7,127 (2,779,722)
Net income 14,630,956 (101,421) (571) 14,528,964
Accretion of redeemable noncontrolling interests (1,918) 1,918
Net income attributable to noncontrolling interests and (236,343) 571 (235,772)
redeemable noncontrolling interests
Net income attributable to the Company's shareholders 14,392,695 (101,421) 1,918 14,293,192
Reconciliation of unaudited condensed consolidated balance sheets (Extract):
As of December 31, 2023 IFRSs adjustments
Amounts as Investments measured at
fair Redeemable Amounts as
reported under value noncontrolling
U.S. interests reported under
GAAP IFRSs
(Note (a)) (Note (b))
Other long-term assets 28,471,568 (15,673,947) 12,797,621
Financial assets at fair value through profit or loss 18,369,496 18,369,496
Total Assets 185,924,978 2,695,549 188,620,527
Financial liabilities at fair value through profit or loss 37,961 37,961
Deferred tax liabilities 2,299,303 29,886 2,329,189
Total Liabilities 57,840,897 29,886 37,961 57,908,744
Redeemable noncontrolling interests 115,759 (115,759)
Total equity 127,968,322 2,665,663 77,798 130,711,783
Total liabilities, redeemable noncontrolling interests 185,924,978 2,695,549 188,620,527
and shareholders' equity
As of June 30, 2024 IFRSs adjustments
Amounts as Investments measured at
fair Redeemable Amounts as
reported under value noncontrolling
U.S. interests reported under
GAAP IFRSs
(Note (a)) (Note (b))
Other long-term assets 27,627,257 (14,942,321) 12,684,936
Financial assets at fair value through profit or loss 17,529,322 17,529,322
Total Assets 183,342,621 2,587,001 185,929,622
Financial liabilities at fair value through profit or loss 38,532 38,532
Deferred tax liabilities 1,448,781 22,759 1,471,540
Total Liabilities 48,997,216 22,759 38,532 49,058,507
Redeemable noncontrolling interests 119,498 (119,498)
Total equity 134,225,907 2,564,242 80,966 136,871,115
Total liabilities, redeemable noncontrolling interests 183,342,621 2,587,001 185,929,622
and shareholders' equity
Notes:
Basis of Preparation
The Company is responsible for preparation of the Reconciliation Statement in accordance with the relevant requirements of the Hong Kong Listing Rules and relevant guidance in HKEX-GL111-22. The Reconciliation Statement was prepared based on the Company's unaudited condensed consolidated financial information for the six months ended June 30, 2024 prepared under U.S. GAAP, with material adjustments made (if any) thereto in arriving at the unaudited financial information of the Company prepared under IFRSs. The adjustments reflect the material differences between the Company's accounting policies under U.S. GAAP and IFRSs.
Note a. Investments measured at fair value
Under U.S. GAAP, the investments in convertible redeemable preferred shares and ordinary shares with preferential rights that are issued by privately-held companies and therefore without readily determinable fair values could be accounted for using measurement alternative as an accounting policy choice. NetEase elected the measurement alternative to record these investments at cost, less impairment, and plus or minus subsequent adjustments for observable price changes.
Under IFRSs, these investments were classified as financial assets at fair value through profit or loss and measured at fair value with changes in fair value recognized through profit or loss.
Note b. Redeemable noncontrolling interests
Under U.S. GAAP, SEC guidance provides for mezzanine-equity (temporary equity) category in addition to the financial liability and permanent equity categories. The purpose of this "in-between" category is to indicate that a security whose redemption is outside the control of the issuer may not be classified as a permanent part of equity. NetEase classified the redeemable preferred shares issued by certain subsidiaries as redeemable noncontrolling interests in the condensed consolidated balance sheets and recorded them initially at fair value, net of issuance costs. NetEase recognized accretion to the respective redemption value of the redeemable preferred shares over the period starting from issuance date to the earliest redemption date.
Under IFRSs, there is no concept of mezzanine or temporary equity classification. NetEase designated the redeemable preferred shares as financial liabilities at fair value through profit or loss which are measured at fair value. Subsequent to initial recognition, the amounts of changes in fair value that were attributed to changes in credit risk of the issuer were recognized in other comprehensive income, and the remaining amounts of changes in fair value were recognized in the profit or loss.
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SOURCE NetEase, Inc.
